Currency translation supplied most of the momentum for an 11.3% rise in net revenues at US-based contract research organisation (CRO) MDS Pharma Services during the second quarter of 2008.

Net revenues, which did not include reimbursement revenues, were US$128 million for the quarter ended 30 April 2008, compared with US$115 million for the second quarter of 2007. Around US$11 million, or 10%, of that increase came from favourable exchange rates.

Operating income was flat for the quarter, a distinct improvement on the second quarter of 2007 when MDS Pharma Services was still reeling from the impact of US concerns over bioequivalence studies conducted at two of its facilities in Canada and the subsequent audits of MDS pharmacokinetic studies requested by the Food and Drug Administration (FDA) in January 2007.

The US$98 million loss sustained in the year-before quarter included a US$61 million provision for reimbursing client costs related to the FDA review of MDS Pharma’s bioanalytical operations in Montreal, Canada and a US$23 million restructuring charge.

Adding these and other charges back in levelled out adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) for Q2 2007, while adjusted EBITDA for the latest quarter were US$1 million in the negative. This was despite a US$10 million reversal to income of the US$61 million FDA review provision, based on costs incurred to date (US$19 million) and MDS Pharma’s best estimate of future liability.

According to the CRO, the decline in adjusted EBIDTA for Q2 2008 was mainly due to higher-margin services reported in the late-stage business during the second quarter of 2007, heavier investments for growth in 2008 and the impact of contract cancellations, all of which offset the savings achieved through restructuring activities initiated during Q2 2007.

At the revenue level, the early-stage business was 13.3% ahead at US$68 million in the latest quarter, an improvement MDS Pharma credited mainly to increased Phase I activity, including the impact of a new US facility in Phoenix, Arizona and higher demand for bioanalytical services. Late-stage revenues climbed 9.1% to US$60 million, reflecting growth in MDS Pharma’s central laboratories business that was partially offset by the effects of contract cancellations in Phases II-IV due to failures of compounds in earlier quarters.

New orders for the second quarter of 2008 were worth US$165 million, 60% more than in the same quarter last year. MDS Pharma saw a US$36 million or 9% increase in period-end backlog (to US$431 million) and a 13% improvement in average backlog (US$405 million) from the first quarter of 2008. Period-end backlog was up by 1% against Q2 2007 but average backlog declined by 10%.

Looking ahead, MDS Pharma Services noted the strong growth in new-order wins during recent quarters, including US$342 million reported for the first half of 2008. “While we expect these new orders to begin driving increased revenue in the second half of 2008, attention continues to be focused on restoring profitability by streamlining and strengthening the solid platforms we have throughout our business,” it commented.

The CRO is expecting increases in adjusted EBITDA for the second half of 2008 and beyond, as higher revenues from its growing backlog leverage an improved cost structure. “In addition, we will continue to implement new productivity initiatives to further improve profitability,” MDS Pharma said.